Do you often hear friends talking about NFTs and DeFi, feeling like you’ve missed the entire Web3 wave? Do you feel a bit anxious looking at those unfamiliar terms, not knowing where to start? Don’t worry, you’re not alone! This article is the ultimate beginner’s guide for “Web3 outsiders” like you. We’ll use the simplest terms to guide you from the basic concepts of Ethereum applications, breaking down smart contracts and dApps, and delving into the hottest applications today: DeFi and NFTs. After reading this, you’ll have a comprehensive and clear understanding of what Ethereum is and its ecosystem, and you’ll be able to chat confidently about it at your next gathering!
To understand Ethereum, we can start with the more familiar Bitcoin. The emergence of Bitcoin created a kind of “digital gold” on the internet; its main function is a peer-to-peer electronic cash system for recording and transferring value. You can think of it as a global, shared, and immutable ledger. But Ethereum’s founder, Vitalik Buterin, believed that the potential of blockchain was far greater.
He envisioned that blockchain shouldn’t just be a ledger, but a “world computer.” What does that mean? It means that besides transferring value, developers could write and run all sorts of applications on this chain. This is the fundamental difference between Ethereum and Bitcoin—programmability. If Bitcoin is Blockchain 1.0, then Ethereum is the key that unlocked the era of Blockchain 2.0, evolving blockchain from a simple monetary system into a versatile application platform.
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This is a common point of confusion for beginners, but it’s actually quite simple:
A simple way to remember: Ethereum is the stage, and Ether is the ticket and the salary for the backstage crew.
It is precisely because Ethereum allows developers to freely create applications on it that a cascade of subsequent innovations was triggered. The biggest hero behind this is what we’ll discuss next: the “smart contract.” It allows developers to set complex rules and logic that execute automatically and trustlessly. This invention completely opened up the imagination for blockchain applications, paving the way for the birth of disruptive innovations like DeFi and NFTs.
If Ethereum is the “world computer,” then smart contracts are the “software programs” that can run on this computer. They are key to understanding all Ethereum applications. It might sound technical, but the concept is actually very intuitive.
The best analogy is a common vending machine. When you want to buy a can of soda, what’s the process?
The entire process requires no intervention from a clerk; the rules of the transaction (how much money for which item) are pre-programmed into the machine. A smart contract is the digital world’s vending machine. It’s a piece of code with pre-defined “If…Then…” trigger conditions and corresponding actions. Once the contract is deployed on the Ethereum blockchain, it runs automatically, and no one can unilaterally alter or stop it.
The core of a smart contract lies in “automation” and being “trustless.” In the traditional world, we need third parties like lawyers and courts to ensure contracts are executed. But in the blockchain world, the smart contract is its own enforcer. The code is the law (Code is Law).
This mechanism dramatically reduces the cost of trust, enabling strangers to collaborate and transact securely and reliably on a global scale.
Because the backend logic of all decentralized applications (dApps) is essentially composed of one or more smart contracts. For example, a decentralized lending platform’s core is a smart contract that specifies rules like, “If you stake assets worth $100, you can borrow stablecoins worth $50.” Without smart contracts as the foundational building blocks, dApps would be like castles in the air, impossible to build.
With the powerful tool of smart contracts, developers began to build a whole new application ecosystem on Ethereum—dApps (Decentralized Applications).
The full name for dApps is “Decentralized Applications.” From a user interface perspective, they might not look much different from the apps we use daily (like WeChat or PayPal). But their backend operations are worlds apart.
We can use a simple table to compare:
| Feature | Traditional App (e.g., TikTok) | dApp (e.g., Uniswap) |
|---|---|---|
| Backend Server | Centralized servers controlled by a company | Runs on the Ethereum blockchain (smart contracts) |
| Data Ownership | User data is controlled by the company, may be censored or sold | Users have full control over their data and assets via their wallet |
| Operational Status | The company can shut down or modify the service at any time | Once deployed, it never goes down, unless the entire Ethereum network fails |
| Account System | Requires registration and personal information | Simply connect a crypto wallet, offering anonymity |
In summary, the greatest appeal of dApps is that they return power to the users. Since the code runs on a decentralized blockchain, no single entity can control it. This brings several core advantages:
Among the many dApps, financial applications are undoubtedly the fastest-growing and most impactful. This is what we often hear of as DeFi (Decentralized Finance).
The core idea of DeFi is to use smart contracts to recreate the core functions of the traditional financial system on the blockchain—such as trading, lending, saving, insurance, etc.—but completely removing intermediaries like banks and brokerage firms. You can think of it as a 24/7, globally accessible, permissionless, and extremely transparent automated bank.
The world of DeFi is like a LEGO park, where various protocols can be combined to create infinite possibilities. Here are a few of the most mainstream application types:
DeFi aims to solve long-standing problems in traditional finance (TradFi):
If DeFi is revolutionizing the world of traditional finance, then NFTs (Non-Fungible Tokens) are sparking a revolution in digital ownership and culture.
To understand NFTs, you first need to understand the difference between “fungible” and “non-fungible.”
An NFT uses blockchain technology to create a unique, unforgeable “digital certificate of ownership” for any digital file (image, video, music, text). You’re not buying the infinitely reproducible JPG file itself, but the on-chain proof that you own the “original” of that file. This explains why a JPG can sell for a fortune—it represents scarcity and verifiable authenticity.
Many people’s impression of NFTs is limited to expensive avatars or digital art, but this is just the tip of the iceberg. The true potential of NFTs lies in their ability to tokenize the uniqueness of anything, with extremely broad applications:
| Application Area | Specific Examples | Problems Solved |
|---|---|---|
| Digital Art & Collectibles | CryptoPunks, Bored Ape Yacht Club (BAYC) | Solves issues of copyright, authenticity verification, and ownership traceability for digital art. |
| Blockchain Gaming | Land, items, and characters in Axie Infinity, The Sandbox | Players truly own their in-game virtual assets and can freely trade or transfer them. |
| Ticketing & Memberships | Concert tickets, event passes, community membership cards | Prevents scalping and counterfeit tickets, and can provide exclusive benefits to holders. |
| Digital Identity & Domains | Ethereum Name Service (ENS), e.g., vitalik.eth | Replaces complex wallet addresses with a memorable NFT domain, becoming your Web3 identity. |
Investing in NFTs is extremely risky, but you can consider the following aspects when evaluating a project:
Alright, let’s quickly recap our journey today. We started with the question “What is Ethereum?” and understood its grand vision as a “world computer.” Then, we unveiled the mystery of its magical core, the “smart contract,” and learned how it functions like a vending machine to create a trustless, automated mechanism. Based on this foundation, the vast “dApps” ecosystem was born.
Finally, we focused on two of the most dazzling killer applications on Ethereum: “DeFi,” which is completely disrupting the traditional banking system, and “NFTs,” which are redefining digital ownership.
Hopefully, by now, you are no longer a stranger to these terms. Ethereum is not just a cryptocurrency; it is a decentralized application platform full of infinite possibilities, a new Web3 digital world under construction. Today, you have acquired the map to enter this new world. It’s time to experience and explore it for yourself!
You mainly need two things: First, a non-custodial wallet (like MetaMask or Trust Wallet), which is your passport to the Web3 world for storing assets and interacting with dApps. Second, you need some Ether (ETH) to pay for the transaction fees (Gas Fees) required to perform operations on the Ethereum network.
The risks mainly come from several areas: 1. Market Risk: The cryptocurrency market is extremely volatile, and asset prices can soar or plummet in a short period. 2. Technical Risk: Although smart contracts are powerful, if the code contains vulnerabilities (bugs), they can be exploited by hackers, leading to loss of assets. 3. Regulatory Risk: The regulatory policies for DeFi and NFTs are still unclear in many countries, creating uncertainty. 4. Scam Risk: Phishing websites, fake projects, and other scams are rampant, requiring users to have a certain level of security awareness.
Step 1: Install a browser extension wallet (like MetaMask). Step 2: Purchase a small amount of ETH from a compliant centralized exchange and withdraw it to your MetaMask wallet address. Step 3: Visit the dApp website you want to use (e.g., the decentralized exchange Uniswap) and click “Connect Wallet.” Step 4: After authorizing the connection, you can start your first transaction, such as swapping ETH for some stablecoins.
No. Although Ethereum is currently the largest and most mature smart contract platform, its high transaction fees (Gas Fees) and occasional network congestion have led to the emergence of many competing public chains, often called “Ethereum killers,” such as Solana, BNB Chain, Cardano, and Avalanche. They typically market themselves with higher transaction speeds (TPS) and lower fees, and they also have their own dApp ecosystems.
